Volvo, Paccar Plan Truck Production Cuts as North American Orders Remain Slow

This story appears in the July 30 print edition of Transport Topics.

Volvo Trucks and Paccar Inc. last week announced plans to cut production, citing a slowdown in North American Class 8 truck orders.

In a July 24 statement, Volvo Group CEO Olof Persson attributed the decline in new orders to customers who placed a substantial number of orders at the end of 2011 and the beginning of 2012 but now have adopted a “more cautious stance” because of growing concerns about the U.S. economy.

Volvo, which makes both Volvo brand and Mack trucks, said its new order intake in North America fell 47% to 8,056 in the second quarter, compared with 15,314 new orders in the same quarter a year ago. Worldwide, the company’s new orders declined 19% to 52,946.

“Current lower demand means that we are manufacturing at a pace which is slightly too high and are preparing to balance production to meet current demand during the autumn,” Persson said in the statement.

In a July 24 interview, he said Volvo and Mack could suspend production for as long as three weeks in the fall, Bloomberg News reported.

Mack Trucks spokeswoman Kimberly Pupillo told Transport Topics that Mack is planning to stop production for one week in September and one week in October at its Macungie, Pa., plant “because the industry as a whole has seen a decline in orders, primarily as a result of recent economic news.”

“We will maintain two shifts and continue monitoring the market situation to see if additional weeks might be necessary,” Pupillo said in a statement.

Volvo Trucks, meanwhile, is planning to stop production at its Dublin, Va., plant during the week of Sept. 17, company spokesman Brandon Borgna told TT.

“The temporary down week is part of our production plan and allows us to maintain a consistent build rate with the current employment level,” he said in a statement.

Borgna said concerns about the economy have been the “primary driver” behind the decline in orders as customers adopt a “wait-and-see” approach.

Paccar CEO Mark Pigott said the producer of Kenworth and Peterbilt trucks expects to trim worldwide production by about 10% in the third quarter. He addressed the issue during a July 24 conference call regarding the company’s second-quarter results.

European production is expected to remain “pretty steady,” but Paccar plans to reduce production in the United States and Canada by 15% to 20%, Pigott told analysts.

“The weak economic growth in the United States, coupled with the ongoing uncertainty in the eurozone, could dampen truck orders for the remainder of 2012,” Pigott said in Paccar’s earnings statement.

Paccar did not respond to a request for additional information about the production cuts before TT’s deadline. On April 16, Kenworth Truck Co. laid off 10% of the workers at its Class 8 assembly plant in Chillicothe, Ohio, because of a drop in new orders (4-16, p. 1).

Daimler AG, maker of Freightliner and Western Stars, did not mention production cuts in its second-quarter earnings report on July 25.

Daimler Trucks North America “foresees no major changes in our production rates through our planning horizon at any of our seven assembly plants in the U.S. and Mexico,” Roger Nielsen, DTNA chief operating officer, told TT.

A spokesman for Navistar, which most recently reported quarterly results on June 7 for its quarter that ended April 30, said the company has not made any announcements regarding production cuts.

Analyst Timothy Denoyer wrote to clients of Wolfe Trahan & Co. about production forecasts on July 22, before the earnings reports from the three truck makers last week.

He said the firm’s contact at a supplier to truck makers expects 2012 North American production to be in 275,000 to 285,000 units, implying a 15% to 20% production slowdown from the first half of the year.

“Our contact believes the industry can sustain a couple more months of poor orders, but if OEMs throw in the towel on expectations for 300,000 [North American] Class 8 builds in 2013, more painful shift reductions become more likely,” he wrote.

Industrywide, new orders have declined for six straight months on a year-over-year basis (7-16, p. 3).

In the first half of 2012, truck makers received 26.8% fewer new orders than in the first half of 2011, according to ACT Research Co.

The June orders figure of 16,690, up slightly from a preliminary figure of 16,500 for the month, was still the lowest monthly total since September 2010, ACT said.

Pigott, of Paccar, said the industry is in “a pause,” or “a reflective mode.” The heavy-duty trucks are “just made well and performing well,” he said, and fleet operators have decided to “just run them and kind of see what happens over the next six months.”

Persson, of Volvo, described opposing forces influencing the truck market.

“I must say that we do still have a replacement need in the U.S. market, where the secondhand value of the old trucks, combined with the high fuel efficiency on the new U.S. dump trucks, makes it a very good business case to transfer from an old truck to a new one,” Persson said in a conference call.